First, let me say I’m humbled that senior management at PerkStreet have contacted me not once but twice about my commentary on their checking account (see Part 1 and Part 2 of the ongoing saga). What follows is my response to their recent comment in Part 2. Second, it’s a great sign to all of PerkStreet’s customers that their management is so dedicated and in tune with monitoring their brand perceptions. Clearly, their finger is on the pulse of their business at even the most micro level, and management should be lauded for it. Now, let’s get to the points John Magee, VP, Analytics & Customer Management, made today over at my PerkStreet Review Part 2.

John says, “We created PerkStreet to give the best value possible to folks who prefer to use a debit card to pay for purchases. We believe that credit card rewards provide an incentive for some people to spend money they don’t have, and we believe we’re providing a better choice. It has been shown that people spend 12-18% less when they use a debit card rather than a credit card, so the simple act of using debit can be a great management tool.” This is a similar story to what Dan O’Malley, the CEO of PerkStreet was saying when he replied to my comment at the NY Times website and what Dave Ramsey touts just about everywhere.

As an aside, I found this oft-quoted 10-18% figure all over the web (especially in personal finance blogs). It turns out the statistic comes from a Dunn & Bradstreet study that no one in the free world seems to be able to find (if you have it, email me a copy!) but has been floating out on the web for at least 4 years. For me that’s ancient news in the area of consumer behavior, but if that’s the best you’ve got, OK. It turns out the other most quoted statistic from that study is that the average transaction rose at McDonald’s from $4.50 to $7.00 when customers used plastic instead of cash. Notice they said cash. They didn’t say debit card. Perhaps it’s time for PerkStreet to pony up some research dollars for a new study?

Even with my quibbles above, I certainly believe that the gist of what they’re saying has validity, and certainly for anyone that overspends solely to generate credit card rewards or because swiping a card feels like they're somehow not spending money, they are dearly missing the point. Further, for such individuals PerkStreet might be a healthy alternative. However, the pink elephant in the room here is this: What if the innovative rewards structure that Perk Street is offering which is glaringly similar to the rewards structure of credit cards causes a similar effect (i.e. overspending in order to achieve rewards and/or not thinking about cash because you’re swiping a card)?

My hypothesis is that the effect would be a similar but slightly lower level of over-spending due to the fact that the consumer is limited by the amount of money in the checking account. This smaller effect is of course non-trivial because one MAJOR way consumers get in BIG trouble is by charging to their credit card more than they can pay for in a given month. Again, my call to action for PerkStreet is for some new research.

(Warning – Geek indulgence in research design ahead!) I’m imagining a study with multiple groups that are demographically similar on all variables except discretionary spending method of payment (non-reward debit card users, PerkStreet debit card user with over $5k in avg. daily balance, Perk Street debit card users with less than $5k in avg. daily balance, non-reward credit card users, reward credit card users, and of course cash users). Ideally, one would capture a year’s worth of spending data from each group and compare across the groups. In reality, one would probably have to use hypothetical scenarios in a controlled setting just due to the sheer logistics of data acquisition in the real world experiment. Another interesting bit of data would be to a pre- post- design with data that Perk Street should have in house on the behaviors of their customers who joined the checking account before the 2% reward program was introduced and compare their spending habits both pre- and post- that event. Unfortunately, that data may be under a year in length and subject to seasonality effects. Additionally, even if we waited a year to have more of the 2% reward time period that overlapped with the earlier period on a monthly basis, one would still be left wondering about historical effects given the fluctuation in the economy over that period. Still, wouldn’t it be interesting to dig through that data? (Geek warning OFF)

John also noted. “Our 5% bonus categories are far broader than the one example you selected. Perhaps most notable is that we’ve had 5% back on gas since June, just like your PenFed card. We have monthly and daily deals, and we make them very easy to find on Facebook (http://www.facebook.com/perkstreet), Twitter (http://www.twitter.com/perkstreet) and our blog (http://blog.perkstreet.com). Nothing to sign up for, no hunting around.” How very Web 2.0 of them. If I were their customer, an email would be helpful as well.

It would also be nice to see a historical list of everything they’ve 5% bonused. By seeing the history, potential PerkStreet users can see the cornucopia of diverse areas they’ve offered over time. John went on further about the bonuses. “I wanted to comment on the bonus categories in general. As VP of Analytics and Customer Management at PerkStreet, this is an important area for me. We’re geekily obsessed with behavioral economics at PerkStreet – that’s why we love how debit spend changes behavior. I’m a cognitive scientist by training, so I understand what you’re saying about variable ratio reinforcement. But our bonus categories and daily deals aren’t that. They were born from our desire to find ways to give more back to our customers, to be the best option available, to be a little bit unexpected, and to be fun to be with. It’s that simple.” Now you’ll pardon me for a little disbelief here, but any company “geekily obsessed with behavioral economics” did not institute this rewards structure to “be a little bit unexpected, and to be fun to be with.” It’s a business. Not only a business it’s a BANK business! It’s designed to make money. It might be fun, but the bottom line is the bottom line. Regarding my critique of their sponsorship of National Junk Food Day as a 5% bonus, John said, “And on the fast food deal, we respect your opinion. We have both fast food fans and Fast Food Nation fans on our team. Sometimes they are the same person. We appreciate every bit of feedback we get on the deals, and we know that everyone will find at least one that they like. We just did National Parents’ Day (http://blog.perkstreet.com/thanks-mom-and-dad/) for spas and florists.” Point taken, and I look forward to the day or week or month when charitable giving recieves a 5% rebate.

By the way, I contacted mom and dad, and they both told me I should keep my money in my money market account gaining 1.5% interest rather than spending it to get rewards at Perk Street or anywhere else for that matter. So, where do I stand now on Perk Street? Well, it’s pretty much where I’ve been standing. Perk Street is a solid option for anyone who prefers debit cards to credit cards. However, I must say that Perk Street’s attention to detail and concern with their brand image has garnered new respect from me. For that reason and for the alternative it offers to those who might misuse credit cards, I am adding the PerkStreet FinancialSM Debit MasterCard® to my recommended list as my only recommended debit card. Read Part 1 and Part 2.